Using absorption costing, a company can ____ net operating income by simply producing more than it sells.
A)decrease
B)increase
C)maintain
D)none of the above

Question

Quizplus · Accepted Answer

With absorption costing, fixed manufacturing overhead costs are included in the cost of each unit produced, regardless of whether or not it is sold. Therefore, if a company produces more units than it sells, it will have some fixed manufacturing overhead costs that are not included in the cost of goods sold. This will result in a higher net operating income, as the company will have more expenses to offset against its revenue.

Using Absorption Costing, a Company Can ____ Net Operating Income